BUSINESS BLOGS
BUSINESS BLOGS
category: business
01 Feb 2008

On Tuesday, Yahoo! CEO Jerry Yang mentioned that Yahoo! would be looking to invest in 2008. He did not name names.

Today Tech Crunch published a rumor that Yahoo! was going to be buying a video platform for $150M. Initially the rumor suggested it would be Brightcove, who’s raised about $80M in venture money, meaning a $150M buyout would not be sufficient to please investors. Then, some thought it might be Metacafe, previously rumored to be acquired by Yahoo!

Turns out the seller is Maven Networks. New Tee Vee confirms the price will be in the $160-170M range.

Maven powers videos for Gannett, Hearst, Fox News, Sony BMG, the Financial Times, Univision, TV Guide, CBS Sports, CNet, and Scripps Networks.

It’s worth noting that Yahoo! is making a bid for a platform for premium content, which is the exact opposite of Google’s M&A target YouTube, who is a platform for user-generated and pirated content. YouTube has since made a big effort to court TV and filmed entertainment content owners and “torso” content producers (such as WatchMojo.com).

It’s also worth noting that such a move comes with risk. When a media company buys a platform, there is a loss of clients. For example, will FOX remain a client, when you consider that FOX’s parent News Corp. has a deal in place with Google (for Fox Interactive Media’s search and contextual business) and Microsoft (for Dow Jones’ search and contextual business). While there is a merit to keep the video platform separate, as YouTube evolves and Google integrates Doubleclick and gets more and more serious about video advertising, expect this matter to come up in discussions. Judging by the client list, I do not see many major risks though, especially compared to the notable client flight risk that Google took on when it bought Doubleclick (and we highlighted - correctly - early on after that deal was announced).

But that is all secondary to the number of publishers that are about to check their contracts to see how quickly they can get out of the DCLK contract. And I’ve already addressed the number of advertisers who probably don’t want to work with a Google-owned ad server here. Just think of how eBay’s marketplace flopped. Sure, that was in TV, but who do you think Google is trying to win over with this deal? The major advertisers, who already fear Google’s ambition.

“I use DFP Reports daily to run the business. The ability to get detailed information on our ad operations has helped us to maximize our selling efforts and keep our advertisers happy.”
Matthew Goldstien, Vice President of Ad Sales Operations, MTV Networks

I really wonder how much longer Viacom’s MTV - the same Viacom who is suing Google for $1B - will be using Doubleclick’s (now Google’s) Dart for Publishers.

I expect competitors to start calling on Maven’s client list. Of course, as Yahoo! is searching for a video strategy (it’s already strong but needs fine-tuning), it’s worth noting that this could be seen as a major plus by clients who use Maven’s platform. Brightcove is a high-profile player in the space, it’s founded by Jeremy Allaire and has a cornucopia of big name investors, but an exit of $160-170M is a bad comparable given all of the money that’s been poured into the company.

Maven on the other hand “only” raised $30M from Accel, General Catalyst, and Prism Ventures. All in all, when you consider the buzz around user-generated content in 2006 and 2007, you start to see that that train has left the station and the market is moving up-market.

Expect a lot more consolidation in the video space, be it:

- platforms
- ad networks
- content plays.

In fact, you are seeing many VCs make calls to continue to fight in online video networks and platforms (by investing more money) or sell out.  VCs have over-invested in file networks and platforms and this sale of Maven is, in my humble opinion, a manifestation of that.  A $150M or $180M exit is fantastic, do not get me wrong, but for VCs who like to aim for the fences, this is not a grand slam by any stretch of the imagination, it is, I think, an admission that the network and platform space is crowded.

If the VCs owned 50% of the company, that means about $75M to $90M, split three ways, that is a $25M to $30M windfall  for each.  But the company’s been around since 2002.  So six years after being founded, the VCs suddenly accept that kind of return?  What happened to the bravado gents?  I suspect once an IPO seemed implausible, then a sale became a good choice (why is an IPO out of the question?  Exhibit 1: the stock market’s tepid start to 2008).

In fact, I’d argue that even sales are no slam dunk: when you think about it, when this rumor crept up, Maven was the third company that people thought of but there could be 10 others that come to mind.

The demand and supply dynamics are generally not in favor of your average, run of the mill platform or an network.  I am not commenting on the businesses here, they are all fine businesses I am sure; I am commenting on these as VC case studies. Yahoo! could have made overtures to a number of these services and ultimately Yahoo! had a world of advantage over any selling party.

I personally see far better dynamics in the content space (a- the wheels have come off the UGC train, b- TV and Film content companies are still not confident in trading offline dollars for online pennies).

As such, the lead a company like WatchMojo.com is building grows… that still does not mean that VCs will or should invest in media content plays - as I had called for last year, I do not think most typical VCs understand media and content to dip their toes - but it does show that the upside to content plays is becoming bigger and bigger because the demand and supply dynamics are quite stronger in video content than platforms or ad networks.